Non-ferrous metals giant Vedanta Resources is planning to enter the Indian steel sector with a 5 million tonne plant near Palaspanga in the Keonjhar district of Orissa.

Vedanta, which is the holding company of Sterlite Industries, has proposed to form a company, Sterlite Iron & Steel Company for the project, which is estimated to cost Rs 12,500 crore (Rs 125 billion). Apart from the steel plant, the project will involve developing iron ore mines.

Sterlite Iron & Steel will be a joint venture between the Vedanta group and Volcan Investments, Vedanta's holding company. The project is estimated to generate 8,000 jobs.

If the plant comes up, Vedanta will become the third-largest steel player in the country after the Steel Authority of India Ltd and Tata Steel.

The chairman of Sterlite group, Anil Agrawal on Tuesday met Orissa Chief Minister Naveen Patnaik and discussed about the project. Many senior government officials were present in the meeting.

Sources said, the project will be fully integrated and the final output will range from hot rolled and cold rolled coils to long products. The company has entrusted M N Dastur & Co to prepare the feasibility study of the project.

"Iron ore mining was on the company's long term plans and given the current scenario in the steel industry, this seems to be a right time to get into the sector," group sources said.

Meanwhile, the chief minister has assured the company top brass that the government is committed to provide necessary support to accelerate development of the project, including support in securing iron ore and coal. For five million tonne capacity, the company will require about 500 million tonne of iron re reserve for which it is expected to apply for the necessary mining lease later.

The chief minister, during the discussion, underscored the need for proper environmental protection and compensation to the families going to be affected by the project.

It may be noted that Sterlite is currently engaged in setting up of a one million tonne alumina refinery at Lanjigarh in Orissa at an estimated cost of Rs 4,000 crore (Rs 40 billion). The alumina refinery is a backward integration venture to support the expansion of smelting capacity of Balco at Korba.